TELF AG’s Key Takeaways from the ESG Segment of the 2023 TFX Conference
Tackling Scope 3 Measurement Challenges in Commodity Supply Chains
The panel discussion brought together sustainability experts from different commodity sectors: food (ED&F Man), oil (Mocoh), and metals and mining (TELF AG), as well as a specialized solution provider: Carbon Chain, to discuss the challenges associated with measuring Scope 3 emissions in commodity supply chains. For commodity traders that are not vertically integrated, Scope 3 emissions can represent almost 100% of their emissions. Calculating and reducing emissions generated throughout the value chain poses significant difficulties due to unclear boundaries, the need for multi-stakeholder collaboration and shared responsibility, supply chain complexity, data availability, and the question of who bears the cost in decarbonization strategies. Despite these challenges, the panel discussion offered valuable insights and recommendations for navigating this complex landscape and driving sustainable change.
Unclear Boundaries:
It is unclear today where to set boundaries regarding Scope 3 emissions. For traders and banks, emissions often overlap significantly, and organizations have different approaches for Scope 3 emissions, as there is no “perfect recipe” Banks must adopt a flexible approach and allow a transitional period for market participants to adjust and invest in decarbonization. Abruptly cutting off financing can have adverse effects, such as stimulating inflation, reducing the competitiveness of ESG-conscious players, and impeding companies’ ability to invest in the energy transition.
Multi-stakeholder collaboration and shared responsibility:
A paradigm shift is necessary to measure effectively supply chain emissions. All actors in the trading ecosystem, including banks, insurance companies, traders, transportation and logistics providers, upstream and downstream producers, governments, and consumers, must recognize their collective responsibility for the impact of trading activities, as they all profit from them. Despite not directly producing or consuming commodities, traders play a vital role as intermediaries, promoting collaboration and enabling the smooth flow of products. This perspective change towards shared responsibility is fundamental to driving sustainability across the supply chain. Scope 3 emissions, in the end, are everyone’s emissions (my Scope 3 is your Scope 1, and vice versa), and each player in the supply chain must collaborate to account for their impacts and the true operating cost properly.
Navigating Supply Chain Complexity:
Traders occupy a central position in the commodity supply chain, acting as intermediaries and bringing together various stakeholders. While they facilitate the exchange of information, it is essential to acknowledge their limitations as they do not produce or consume commodities themselves (except integrated traders). Collaborative efforts are necessary to navigate the complexities of the supply chain effectively. Traders can be crucial in fostering collaboration and promoting supply chain transparency.
Data Availability:
The complexity of supply chains presents a challenge in identifying specific actors responsible for emissions. However, traders often have greater visibility than banks and can build from the first layers of the supply chains, enabling the ripple effect. By measuring and reporting Scope 3 emissions, traders can drive the first necessary step to decarbonize supply chains.
Decarbonization and Cost Allocation:
Decarbonization requires substantial capital investments, and determining who should bear these costs remains uncertain. While consumers will likely share some of the charges, the transition necessitates collaboration and shared responsibility among various stakeholders. Financing renewable energy projects, for instance, can involve companies, governments, banks, and traders working together to ensure strategic investment throughout the supply chain. This multi-stakeholder collaboration is necessary to drive the energy transition effectively. Everyone involved in the ecosystem will have to invest to some extent.
Recommendations to Get Started:
While the challenges of measuring Scope 3 emissions are formidable, one thing is for sure: the first step is to measure, given that one cannot manage what is not measured. Upcoming climate-related regulations, such as CSRD, SEC, and UK SDR, are aiming to pressure organizations in this direction. Some recommendations for organizations embarking on this journey:
Find the right long-term partner, such as solution provider Carbon Chain for measuring Scope 3 emissions, considering now available tools and contextual suitability.
Understand the supply chain’s structure and prioritize layers based on their significance to emissions. Define initial expectations and set clear goals.
Initiate the process with the data available, understanding that data quality will improve over time. As data becomes more available, industry LCAs, for instance, will allow benchmarking performance against competitors.
Conclusion:
All in all, the panel discussion highlighted the challenges surrounding Scope 3 measurement in commodity supply chains. By acknowledging shared responsibility, embracing collaboration, and leveraging available data and technological tools, organizations can navigate these challenges and work towards a more sustainable future. As the industry evolves, it is vital to establish clear expectations, forge partnerships, and continuously improve the accuracy and transparency of supply chain emissions data. Doing so can collectively build a new precedent for sustainable commodity trading.
For more information about the event, visit https://www.txfnews.com/events/268/TXF-Global-Commodity-Finance-Sustainable-Natural-Resources-2023
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